Brief Facts of the Case
The Writ Petition was filed by companies who incorporated as Private Limited Companies under the Companies Act. These companies ran the business of a race club, which included arranging the track for horse racing or any other kind of athletic sports. The Petitioners conducted horse races and facilitated betting on punters. However, these petitioners didn’t engage in betting themselves. The Petitioners had claimed that they charged a commission on the prize money and the rest was given to the winning punter. The petitioners used to pay betting tax as per the Mysore Betting Tax Act, 1932. Although, from 1st July 2017, the Petitioners were paying tax under the Goods and Services Tax laws.
After the CGST regime, by the amendment of Rule 31A of the Central Goods and Services Tax Rules, the GST was made payable on the amount of bet that gets into the Totalisator, contrary to the Petitioners’ commission. Through this Writ Petition, the Petitioners had raised questions on the aforementioned amendment on the grounds that the said Rules were beyond the powers conferred under the CGST Act. It was prayed through the petition that the tax could be charged only on the commissions.
Submission by the Petitioners
The learned counsel of the Petitioners had submitted that the amended rule, Rule 31A(3) violated Article 246A and Article 366 (12A). Thus, it exceeded the constitutional mandate to levy tax only on the goods and services on the principle. Further, it was contended that the said Rule imposed a tax on the entire bet amount without Petitioners supplying any bet. Therefore, it was violating Article 246A. Further, it was submitted that the tax had four components- taxable event, taxable person, rate, and measure of tax. Thus, without assessment of all these, the imposition of the tax was contrary to law. Additionally, it was submitted that the Rule was ultra vires Section 7 of the CGST Act.
Grounds of Challenge
The learned counsel of the Respondent had challenged the submissions by contending that the Act levied the tax on the actionable claim and betting comes under the category of actionable claim. It was submitted that the amendment had only clarified the role of the Petitioners in the field of betting. The learned counsel had remarked the contentions of the Petitioners as the figment of imagination.
Court’s Observation
First, the Karnataka High Court had pointed out that Part XII of the Constitution of India dealt with Finance, Property, Contracts, and Suits. Further, it was noted that Article 265 mandated that no tax should be levied except by the authority of law. The Court had cited various cases and discussed the explanation of four components of tax as mentioned by the Petitioners. Further, the provisions of the Goods and Services Tax Act and the amendment were quoted extensively. Furthermore, the court quoted the English case of the Court of Appeal of Queen’s Bench Division to interpret the term “totalisator”. It was observed that betting is neither in the course of a business nor in furtherance of a business of the race club for the act. It was noted that Rule 31A(3) completely wiped out the difference between the Bookmakers (indulges in betting) and the Totalisators. Therefore, it was noted that there was no supply of services/ bets by the petitioners according to the Act. The Single-Judge bench had observed that the service of planting totalisator in races was similar to Stock Broker or Travel Agent- who was required to pay tax only on the commission that they earn and not all the money that passes through them.
Court’s Judgment
The Karnataka High Court allowed the Writ Petition and declared that Rule 31A (3) of CSGT Rules, 2017 was ultra vires of the provisions of CSGT Act, 2017.
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